322 comments on DrumBeat: January 17, 2007
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322 comments on DrumBeat: January 17, 2007
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The burden of military spending during the Cold War was a far higher percentage of U.S. GDP than is current spending. With the exception of the stagflation of the seventies, the Cold War era was one of growth and prosperity for the U.S. Thus, my reading of the numbers suggests that the U.S. could afford at least double its current level of military spending with little or no strain.
Yes, I understand your point. A recent article in the Christian Science Monitor compared military expenditures during WWII, Korea, Vietnam and Afghanistan/Iraq and reported that current expenditures were roughly 1% of GDP (as compared to 30% during WWII, if my memory is correct). But, then this only accounts for Afghanistan/Iraq and is not included in the $420 billion spent by the US military 2005.
Of course, the CSM article also pointed out that the cost of the current wars is being financed by borrowing. During WWII, US citizens supplied at least some of the needed savings by buying bonds. Now, we expect the Japanese and Chinese to loan us the money.
So, we might have some "fat" to burn in our campaign to rid the world of evil-doers. But in the long term, the thermodynamics are against us.
"Now, we expect the Japanese and Chinese to loan us the money."
Ahhh....so THIS is the "Coalition of the Willing"!!! They are paying for our military services by funding our debt. That is why they can't pull out of the USD$. It is a quid pro quo situation.
Makes sense.
Selling bonds is borrowing money.
During WWII US citizens were buying bonds, now foriegn governments are buying bonds. The only differenec is that it is easier to default or deflate out of foriegn debt than domestic.
The US wasn't almost $10 trillion in debt during the Cold War.
The US Dollar was the world's premier currency during the Cold War. This is slipping badly.
Sometimes History applies, sometimes not. The future is not necessarily a linear extension of the past. Things change.
During the cold war our forests still stood -- at least, in the Pacific Northwest -- and our oil fields were still full. Our giant aquifers still had a full charge, and the rivers ran free.
Now, most everything is used up, and a lot of what is left is mortgaged to the Japanese, the Chinese and the British and Dutch aristocracy.
Oh, and I forgot those coal and uranium and copper mines that no longer are productive.
Or, as Mark Twain said "History may not repeat itself but it does rhyme"
I've heard this stated several times before.
However, I have some doubts as to whether the ratio of military spending to GDP tells the whole story about the economic impact of that military spending.
First off, wasn't US military spending during the Fifties and part of the Sixties mostly pay-as-you-go and mostly taken directly out of taxes? This clearly started to change as the war in Vietnam grew and grew and LBJ started to pay more and more of it with plastic. In our current situation the war in Iraq is completely paid for with debt. This has to make a big difference.
Though it may not have a huge effect on the absolute size of the GDP, I think it's well to remember that a not insignificant fraction of the GDP includes military spending itself. So, to some extent an increase in military spending increases both the numerator and denominator of the military spending/GDP ratio (though of course not by the same proportion). The war in Iraq actually increases our GDP, and I'm sure some economists would find that beneficial. Do you?
While I can't point to any concrete evidence and I make no claims of expertise in this sort of thing, I just have a gut feel that the nature of the entities that comprised the US GDP in say 1956 were of a much more substantive and generally healthier nature than the entities that comprise the GDP today. The structural differences between an economy largely based on domestic manufacturing then vs the debt-ridden service economy and financial shananigans we have now surely must count for something. Or maybe it doesn't?
Do you really think the US economy right now could absorb the cost of another $500 billion+ Iraq war without dire consequences?
Agree that the whole economy is quite different now, and not in a good way for the U.S. We were still on the upslope of Hubbert's Peak. We were still making stuff other nations wanted to buy.
Something like 30%-40% of tax revenue came from corporations. Now they are all incorporated overseas, leaving individuals to foot the bill. Only 7% of revenue comes from corporate taxes now.
Today's NYT:
You forgot to add the cost of a wholly retrofitted private auto fleet with an eye for a changeover to primarily plug in diesel-electric hybrids running on biodiesel. I daresay that 1.2 trillion would still have enough left over for at least a part of that project.
Yes, I think the U.S. economy right now could absorb the cost of another $500 billion+ Iraq war without dire consequences. Note that the consequences of the Iraq war have been mainly beneficial for the economy as a whole. Why? Because the increased spending had a multiplier effect (just like Econ 101!) and stimulated the economy to the point where unemployment is near a forty-year low.
The U.S. economy is huge. In the very very long run, being a colonial power is a drain, as ancient Rome found out. But the expansion of Rome went on for hundreds of years, and its "decline" also took hundreds of years.
Thus I think it is a big mistake to look to concepts such as entropy for elucidation of current issues in U.S. military spending--which is low by standards of the past sixty years.
I ran across an interesting little stat a while ago. If you add up our military expenses since WW2 it is almost exactly equal to the national debt, around $10 trillion. So it seems reasonable to me to say that of all the money we've spent on the military, we haven't paid for one red cent of it. (and we never will)
Well if you add up all the interest paid since 1946 it is much more than ten trillion. Like my Granddaughter, if you keep it up the intrest will soon be greater than your income.
Yes but in the high tech twenty first century every year is a decade, or even more than a decade. Entropy is exponentially faster, and empires look almost like claymation compared to ancient Rome.
A would also add that in 1956(say) when the Military bought something, chances were that it was MADE by an American who took that paycheck home to support his Not-working wife and spent it in HIS community.
I wonder what percentage of the military spending is on something MFG'ed out of the country?
" the war in Iraq is completely paid for with debt."
Actually, not really. The current nominal federal deficit is about $250B. If you subtract about $200B for inflation's effects on our outstanding debt (2% inflation and $10T in debt) you have a net, real deficit of only $50B, or less than 1% of GDP, and maybe 9% of military spending. That may have a lot to do with the current economic slowdown, BTW.
Actually, Japan has a much larger government deficit, as a % of their GDP.
Key difference is that Japans government borrows from it own people whereas the US is mostly borrowing overseas today. So it is likely less sustainable. Given the state of the Japan economy over the last 2 decades I really think that if you have bring them up as a comparison you are in a bit of trouble.
"Given the state of the Japan economy over the last 2 decades I really think that if you have bring them up as a comparison you are in a bit of trouble."
But that’s just the point: we’re not doing so badly compared to the Japanese. Their economy has stagnated for a long time due to excessive savings, while the US economy has grown perhaps 50% ( albeit while accumulating excessive foreign debt).
Time will tell.
Oh, heck, I'm not saying things will go perfectly smoothly for the US. I'm just not sure that the US compares badly to the Japanese, who among other things are about 90% dependent on FF imports for energy(they use oil for most electricity generation!), while the US is only about 30% dependent overall.
http://www.tekes.fi/tapahtumia/densy/Tanaka.pdf
about 18% of electricity generation (TWhr) in Japan is oil fired, according to the above.
http://www.cslforum.org/japan.htm
about 60% of all electricity from thermal generation, including coal and gas. They are expanding their nuclear sector quite rapidly.
Energy efficiency is a priority in the Japanese economy. They are the most energy efficient large economy, which is particularly interesting given they have a harsh climate, and are the most industrialised of the advanced industrial states (other than South Korea).
They are certainly ahead of the US in securing contracts for, and building infrastructure for, long term LNG imports.
It would be a gross oversimplification to say the problem with the Japanese economy is it has 'too much savings'. Actually Japanese consumers (now) have very low savings rates: a little heralded transformation from the late 80s.
What you have in Japan was a broken system for investing capital: the banking system was not making efficient loans, nor were companies investing efficiently.
There are significant signs the same thing has occurred in the US housing finance market (although not on the scale of the Japanese bubble of the 1980s). It will be interesting to see how it plays out.
hmmm.
This is part of the reason I post: learning new things.
So the Japanese only save about 3% now. Wow.
Only 40% of generation from oil & gas? That's not too bad. Of course, it's all imported.
They're pursuing solar (and nuclear) pretty aggressively. OTOH, they don't know what to with wind, what with small disconnected grids that make balancing load & demand hard.
Anyway, my point was that we shouldn't make simplistic comparisons with other countries. The US has problems, but other countries do too.
Wouldn't this ability to greatly increase military spending be somewhat dependent on the dollar maintaining its role as the world's reserve currency?
With the threat of new petrocurrencies and the world looking to move away from the dollar the ability to borrow may be greatly curtailed in the next few years.
I wonder when it will become apparent to the general public that guns are going to increasingly come at the expense of butter. So far we have been able to have both, but that can't last forever.
Nothing lasts forever.
However the U.S. has plenty of "butter." Most of our GDP is stuff that we could really do without--meaningless legal services, medical services for people in their last year of life, psychological services for unhappy (Desperate!) housewives, snowmobiles, gambling, porn, overpowered boats, etc. Because so much of our output is not very useful, we could give it up with small loss.
Our ability to increase both agricultural output and manufactured goods is huge. It might take a few years, but the U.S. could fairly easily go back to a 1955-85 style economy with heavy military spending.
We still know how to build airplanes and tanks, not to mention other munitions of all kinds.
every one of those "useless" things is a job for someone.
Throwing the "multiplier effect" out with the butter...
Don, this is precisely why we should be worried. The US economy is increasingly reliant upon appeals to personal vanity to keep us all employed (and fed, clothed and sheltered). What happens when our "mad money" dries up?
Also, I might want to argue with you over our ability to increase our agricultural output substantially. Our best farmland is already in production and what remains out in CRP, etc. are "marginal" lands -- not very productive. We made huge gains during the "Green Revolution" but those gains, as we know, were possible only because energy was cheap. Organic, Conventional -- any way you cut it, growing a 250 bu./ac corn crop takes a lot of resources and energy. Will GM organisms be our salvation? They may lead to a better returns per unit of input, but the big gains in ag yields have already occurred.
Now,if you want to talk about producing calories in a strictly controlled laboratory environment -- there you could make some gains. Soylent Green anyone?
In Minnesota (and I suspect elsewhere in the Midwest) huge tracts that used to grow corn are now in pasture. It wouldn't be much of a trick to plow up land that is good for corn (and now in pasture or growing alfalfa for hay) and increase output greatly.
We have been paying farmers billions upon tens of billions of dollars a year NOT to produce. To increase agricultural output, all we'd have to do is to reverse present policy--which goes back seventy-five years--that tries to minimize surpluses. When you pay farmers not to grow corn, they won't grow so much of it. When corn gets up to a reasonable price such as five or six dollars a bushel (moderate in inflation-adjusted historical terms), then you'll see a quick and very substantial increase in corn production.
Well, I have no doubt that as the bushel price of corn or beans (or switchgrass, for that matter) climbs, we're going to see a lot of idle land put into production. We just shouldn't fool ourselves into thinking that that won't create its own set of problems.
That's true, but in order to achieve Bush's reported target of 60 billion gallons/year there would need to be approximately 130 million acres devoted to corn production (assuming 2.8 gallons of ethanol produced per bushel and average yields of 165 bushels per acre). According to Iowa State University, about 79 million acres were planted to corn in 2006. That's a big shift no matter how you look at it.
http://www.card.iastate.edu/iowa_ag_review/fall_06/article2.aspx
We have been paying farmers billions upon tens of billions of dollars a year NOT to produce.
10's of BILLONS of Dollars per year you say?
The department of Ag gets 19.7 billion in 2007. So you are claiming that most of that money goes so farmers WON'T actually produce?
The consevation program gets under a billion.
Where exactly is the '10's of billions' you claim coming from?
My distinct impression, from various sources including 'The Omnivores Dilemma,' is that the policy of paying farmers to leave land fallow, especially for corn, was phased out by Earl Butz and that now farmers are encouraged to plant every available acre. This is a big reason for the (rapidly diminishing) corn glut.
Farmers have not planted "fence post to fence post" for many years. The price of corn has been so ludicrously low for so very many years that much land has been put to growing hay or left in pasture--or in some cases left completely idle. What few people outside the Corn Belt seem to appreciate is that the low prices for corn of recent years were not only ridiculous but also unsustainable.
You sir, are 100% correct! Ethanol opponents like to conveniently leave out such 'minor' inconsistencies from their diatribes. You know, the little things such as:
- the fact that the price of corn vis-a-vis production has probably never been economically sustainable
- the fact that there is and has been a glut of meat on the market for years, the results of which have sacked producer margins if not the outright existence of the smaller, individual rancher
- the fact that millions of $$$ in corn farming subsidies will be eliminated this year because the farmgate price of corn has actually risen to realistic levels
- the fact that 1/3 of all the corn used can be returned as a high-protein feed, the amounts of which may impact the market so much, that cause for concern has been raised by lower-protein feed providers
Syntec, there is no doubt that trying to grow and market corn hasn't been much of a business. There are a number of reasons for that, most of which can be traced to the development of an agricultural system that is very efficient at converting non-renewable resources (fossil fuels, fertilizer deposits, topsoil) into corn. It has been, in fact, so damned efficient that the family farmer -- always a "price taker" as an ag econ prof used to remind us -- has put himself out of business.
I don't hold myself up as an expert (I have a BS in agronomy and an MS in soil science) but know enough about agricultural systems to know that current corn-growing methods are unsustainable. In fact, the higher corn prices go, the more quickly corn farming as we know it will collapse because higher prices will bring a lot of marginal land into production. And marginal land, by definition, is land which returns lower yields per unit of input. This is a gold rush and gold rushes always end the same way: A few folks get fabulously wealthy; a larger number of people lose what little they had and hang themselves; and the landscape is dotted with a new crop of slag piles.
So, I see your "benefits" and I can only say I'm happy to see the farmer finally getting something for what he/she grows (though, as always ADM, DuPont, Dow, Monsanto, and Cargill will be the big winners). But unless you can learn to grow 200 bu/ac corn without depleting what are non-renewable resources -- fertilizers, petroleum and topsoil -- you won't be in the ethanol business for long.
Which is why I support an organic corn ethanol mandate.
And you'd never guess in a million years who has my 'back' on this one...
"First and foremost, we found that corn and soybean yields were the same across the three systems," said Pimentel, who noted that although organic corn yields were about one-third lower during the first four years of the study, over time the organic systems produced higher yields, especially under drought conditions. The reason was that wind and water erosion degraded the soil on the conventional farm while the soil on the organic farms steadily improved in organic matter, moisture, microbial activity and other soil quality indicators.
Adding "organic" on a non working concept's name does not make it into a working concept. At best it allows you to scam people for a little while longer. As far as I can tell you are either among the scammers or the scammees. I can't tell which one it is. Not that I or very many other people who understand the problem will likely care.
"As far as I can tell you are either among the scammers or the scammees."
Well in consideration of the fact that you're the NOOB here, I guess I'll just have to cut you some slack.
I don't remember your slack selling for much these days. Maybe you need to advertise better?
Sorry Syntec, but I am going to need a reference on that one. A URL would be nice. I simply do not believe you can produce as much corn from organic growing as you can by using massive amounts of nitrogen fertilizer. I grew up on a farm where we grew corn with two row planters and bag fertilizer. We got about one third or less the yeilds farmers are getting today.
And I cannot figure out why you did not post your source in the first place. That is always the thing to do you know. A URL or book source always tells people you are not bullshitting us. And you left us guessing.
Ron Patterson
Ron, I suspect that Syntec was referring to a recent report (Organic and Conventional Farming Systems: Environmental and Economic Issues) of which Pimentel was lead author. You can find this PDF here.
It is possible that some organic farmers are competing yield-wise with conventional farmers. A number of years ago, I heard Dick Thompson, an Iowa farmer give a talk at a sustainable ag conference. He showed some slides of his farm in Boone and it was obvious that he and his wife had a beautiful and elegant operation. I just did a quick search for information about him and I found this. There looks to be a lot more out there about him and others that are doing much the same sorts of things.
Hope this is helpful.
I will point out though that Pimentel still feels that ethanol is a loser. Read what he says here. Perhaps Syntec has had some more in-depth communications with Pimentel but, at least in this article, he seems to be saying "No way, no how!"
There is nothing organic about the way ethanol is made from corn or any other source. It involves fermenters, distillation columns and lots and lots of external energy sources. To put the term "organic" on the corn production process changes nothing about the very low, if not even negative EROEI. Anyone who thinks otherwise is either uninformed or tries to spin the story. In either case, the term is useless for any adult discussion of corn ethanol production yields.
Wrong again there IP.
Organic is in refence to the feedstock, in this case corn. I didn't put organic on the production path - you did.
You're wrong about the EROEI of corn ethanol - it's positive.
And low and behold, you are also wrong re: the impact that organic corn would have on the EROEI of corn ethanol, as fertilizer, herbicide and pesticide usage is collectively one of the largest sources of total fossil fuel inputs (30%) in the corn->ethanol production path.
Sorry missed the URL. Tarzan found it though.
Farmers have not planted "fence post to fence post" for many years.
Why should they, when they can get 10's of billions in money to NOT plant...right?
Farmers have not planted "fence post to fence post" for many years.
Don, this is simply NOT true. Everytime I drive through the rural areas, I see more trees bulldozed for extra corn acres, more wetlands converted. The fence lines are all sterile, farmed to within inches of the fences. Farmers tell me they do this because they have to pay high property taxes on their land, so they need to farm every square inch. Also, by pastures you refer to above, I assume you mean CRP land. And if you read the Market to Market link I posted here on Sunday, you will see that the ag experts expect the CRP program acres to be utilized by '08 to grow corn for ethanol.
Farmers tell me they have not been planting corn because of ridiculously low prices for corn, and I believe them. Much land that is not CRP sits idle, much more is in hay.
Time will tell, and if corn prices move up to a reasonable range in the four to six dollar a bushel range, I think you will see a prodigeous increase in both U.S. corn output--and also in corn output in other parts of the world.
Why would a farmer want to lose money by planting more corn at absurdly low corn prices? Makes no sense at all.
and if corn prices move up to a reasonable range in the four to six dollar a bushel range...
Do you know what the price of corn is today? $4.05/bushel
Do you know how low $4 is by historical standards (correcting for inflation)? The four to six dollar range is moderate and reasonable; I'd say anything much above six dollars a bushel would be "high."
"Soylent Green is PEOPLE"
According to the official White House, CBO and GAO web sites, the Fiscal Year 2007 DOD budget will be $440 billion, plus $50 billion in a pending supplemental request for Iraq. Another supplemental is expected later this year for at least the same amount. The Department of Energy will spend about $16 billion for building, inspecting, dismantling and disposing of nuclear reactors for the Navy and the research, development, storage and disposal of nuclear weapons. Total defense spending will therefore be at least $556 billion, about 5% of GDP. This does not include money for Veterans Affairs or money funneled to DOD through the Department of Homeland Security.
For that money we get about 1.4 million full-time active duty (ACDU) service personnel and 2.7 million part-time reserve and national guard personnel (RESNG). Assuming a constant ratio of spending for personnel, adding $500 billion in DOD expenditures could result in about 1.2 million more ACDU troops and 2.3 million RESNG troops.
One might worry about the effect on the domestic economy of moving 1.2 million full-time jobs from civilian production to military consumption. However, apparently the solution would be to have someone identify which civilian jobs are meaningless. Then we simply do not allow people to go into those jobs. Certainly any and every aspiring fingernail technician or insurance paperwork processor is mentally, medically and morally qualified for military service.
The inflationary pressures from added consumption of desirable products like bullets, bombs, boondockers and bandages could be handled by improving the efficiency of the current producers and by moving more workers in meaningless jobs into desirable jobs. Certainly any auto detailer or lawn technician could easily convert to a communications system engineer or jet engine mechanic.
We would still need to find ways to offset the costs of moving 1.2 million fully taxable incomes to reduced tax status, outbidding the civilian sector for those new troops and the increased long term obligations for veteran's care and benefits. And, there is likely to be costs deriving from the temptation to use the troops simply because we have them. Fortunately, we should have plenty of time to figure out how to deal with those issues.
The new SECDEF plans to increase the size of the military by 91,000 active duty troops over five years. Why five years? Because that is about the fastest we can recruit, train, equip and then assimilate the new troops without going on wartime footing. We're talking 1.2 million here, so we should have plenty of time to figure out how to get that many more people in uniform without distorting the economy and having to offer enlistment bonuses in the six figures (versus the mid-5 figures being offered to some now).
Of course, we could spend more without adding all those troops. Buy lots more jets and tanks and trucks and ships and fuel and bombs and such. But, then we have to actually use them or we'll need more warehouses and aircraft parking ramps and piers. "Sailor, drive that ship somewhere!" "Soldier, shoot something!"
BTW, in 1945 our 30% spending on defense bought us 8.3 million active duty troops (all services) or about 5.5% of the 150 million US population. The same percentage of today's 300 million Americans would mean 16.5 million active duty troops, an increase of 15 million.
For active duty forces alone, the current total cost (pay, operating expenses, maintenance, etc) is well over $400 billion per year for 1.5 million troops. If the troops to spending ratio held, it would take and additional $4 trillion to add 15 million active duty troops. Total active duty expenditures would then be over $4.4 trillion, or
my reading of the numbers
Do 'your numbers' include 2.1 trillion in 'items we can't account for' per a press conference of the Sec. of Defense? How about how, for a large part of the 'cold war' the US was a net exporter of oil?
to say "double its current level of military spending" is all very fine a good, but 64% of current spending (at 632 billion) doubling that would exceed the 983 billion in hte discretionary budget.
http://www.deviantart.com/deviation/39894058/?qo=4&q=government+spending...
Don, with all due respect, you should know better than to focus on a single variable, especially one that is of arguably dubious value (GDP), and make such an arm-waving pronouncement. It is similar to arm-waving claims that we (our society) can get along on solar PV energy-- no problemo!-- based on the fact of however many gigawatt hrs of sunlight hit the earth. Just a few minor details might be left out.
"Just a few minor details might be left out."
Solar PV is still much more expensive, at about 25 cents/kwh, than oil, gas & wind, but even at that price it's still cheap enough to run an economy on if you had to (as proved in Japan). Of course, you won't have to, as the cost is plummeting (though not the price, due to skyrocketing demand).
Any other details left out you'd like more info on?
"Any other details left out you'd like more info on?"
Don't confuse him with details. His mind is set!
Mindset is like sunset, just darker and there are no known cases of mindrise.
My yearly price check has PV power, residential system, amortized for 30yr lifespan + grid-tie-in charge + conservative amt for possible maintenance in my OR region at about 5x what the local power co. can deliver which makes it roughly $0.40/kWH
In case you are wondering, I know what it is like to live without electricity. Been there, done that. I can adapt to much lower energy lifestyle than I have (which is already less than 1/2 the typical American).
Also, I am completely rooting for PV energy generation to get to the needed tipping point at which it will actually work on a large scale basis. It just simply is not there yet.
Oh... I forgot, my mind is set, ignore all that and don't confuse me with details.
ET, a few thoughts.
First, the way you phrased your first post made you sound excessively skeptical about PV. That's what I was responding to. I agree that PV is too expensive, given the alternatives, especially wind.
2nd, don't forget the difference between cost & price. PV prices are inflated right now because of the polysilicon shortage.
3rd, I'm curious: what are the specific costs you found? Can you break them into panels, installation, & operating costs? I'm especially curious about "grid-tie-in charge + conservative amt for possible maintenance", and your assumptions on capacity factor.
Hi Nick,
First of all, thanks for being reasonable and courteous, unlike IP to whom my jibe was aimed.
I am skeptical about PV. Whether excessively or not, we will see in time.
I usually use Mr. Solar as a reference, although I have cross-checked prices with a local PV installer and prices jibe pretty closely. A grid-tied system delivering an average of ~540 kWH/mo will cost me around $33,000. This amortizes to about $197/mo for 30 years at 6% interest. My grid tie in would be about $15/mo and I would figure about $10/mo maintenance, although this is just a SWAG. Doing the math gives me roughly $0.40/kWH. We have relatively cheap $0.08/kWH here with a large % of hydro power.
RE polysilicon shortage causing high PV prices. This may be so, but it is also true that manufacturing processes are dependent on fossil fuels which are likely to be in short supply in the future as well. I may be wrong on this, but I anticipate that PV components will rise in price along with fossil fuel prices. I don't think anyone can prove one way or another at the moment and we will have to wait and see.
I have been keeping an eye on the Aussie co. Green & Gold with their concentrator system. They advertise systems that come out to less than half what I've quoted here per kWH. Unfortunately they are a recent start up, giving one pause in terms of how reliable are their claims, and they don't distribute in the US.
Altogether, I'm still in a wait-and-see mode for PV. My feeling is that if in 5 years, PV is not yet cost-competitive, it never will be. At that point, installing PV (or wind) may be a matter of being willing to pay the price to have electricity at all (off grid).
In my location, a theoretically ideal system would probably include a small wind turbine because winters are notoriouslly cloudy--and windier. This does make for a much more expensive system though.
Another thought is that if we move to Electric vehicles, the monthly kWH load would increase somewhat.
"First of all, thanks for being reasonable and courteous, unlike IP to whom my jibe was aimed."
Your welcome. It just makes life easier and nicer....
"A grid-tied system delivering an average of ~540 kWH/mo will cost me around $33,000. "
What is it's peak kw rating? I suspect you're dealing with a relatively low capacity factor. Though I think IP (in the next post) overstates the problems for solar in northern climes, he does have a point: insolation where you are may be 40% lower than in southern CA. Solar will take much longer to become economic, as you go further north. In fact, PV can compete now in certain parts of S CA, where insolation is high, and grid electricity prices are even higher (over 25 cents after a certain consumption level), and in Japan where grid rates are high (20 cents) and interest rates very low.
"Manufacturing processes are dependent on fossil fuels which are likely to be in short supply in the future as well. I may be wrong on this, but I anticipate that PV components will rise in price along with fossil fuel prices. north."
I call this "the garbageman error": at one point in New York City there was a sanitation worker's strike, and one slogan was along the line of "without us NYC shuts down: we're vital to the city, so we deserve as much or more pay as anyone". Garbage pickup may be essential (like a lot of other things) but that doesn't make it important in any other way.
So, manufacturing is dependent on fossil fuels at the moment, but that doesn't mean they're a big % of manufacturing cost. In fact, energy costs over 5% in manufacturing are unusual (you see them in places like aluminum and steel smelting, or commodity plastic items), and for PV they're roughly 3% of overall costs. So, if energy costs triple, PV cost would only rise 6%. And, of course, it's output would become 3x more valuable.
This is the whole idea of E-ROI. PV has a good E-ROI, at least 20 (see the earlier TOD article by Professor Cutler Cleveland), and so by definition energy costs are a small % of it's costs, and if energy costs rise it will only become more valuable.
Another thing to keep in mind is that at the moment framing and installation (Balance of System) costs are about 50% of PV costs. PV is really a cottage industry of retrofits, astonishly immature as an industry despite it's astronomic growth rate and size ($10B in 2005). BOS costs will plummet as PV becomes integrated into building construction, especially in new construction but also in re-roofing.
You might want to check out Nanosolar.com. They promise to reduce the costs of PV cells by about 75% in 2007, and they look likely to succeed.
RE: system energy rating
If I take the ideal insolation value from their chart, I still get $0.32/kWH or 4x what I'm paying now. These figures jibe with what folks who actually have systems are getting.
RE: Fossil-fuel 'subsidy'. Everything in the economy that is dependent on fossil fuel-- which is virtually everything-- will be more expensive, so just an energy percentage figure doesn't tell the story.
I agree that PV is still immature, this is why I am in a wait-and-see mode. With all due respect, you do what many proponents of a given technology do, take absolute best-case scenarios all through the process and come up with an overly optimistic picture. I will always take real-world figures as being more representative of what a technology can do. The back of the envelope can be very deceiving.
For the past 6 years I have run this excercise to see comparative costs of PV vs grid and I don't think PV has gotten appreciably cheaper in that time period. The bottom line always has to be how many dollars I take out of my pocket for a given amount of energy, and what the future holds nobody can predict.
"If I take the ideal insolation value from their chart, I still get $0.32/kWH or 4x what I'm paying now."
From what you're saying, you only have 25% penalty for lower insolation, which doesn't surprise me. People overestimate the impact of a northern climate on solar.
"These figures jibe with what folks who actually have systems are getting."
I'm not questioning that. I'm just curious what the actual values are.
"Everything in the economy that is dependent on fossil fuel-- which is virtually everything-- will be more expensive, so just an energy percentage figure doesn't tell the story."
I've seen this idea before in Peak Oil writings, and I believe it's entirely incorrect. It seems to be based on a vague idea that energy in general, and oil in particular, are much more important than they really are. What did you think of my "garbageman's error"? Consider that the price of oil tripled over the course of a couple years recently, and yet inflation only went from 1.5% to roughly 3.5%. Oil is essential, but it's not that big a part of our costs. A tripling of oil costs will be more than sufficient to reduce demand to meet oil depletion, but it won't change most manufacturing costs that much.
"absolute best-case scenarios all through the process and come up with an overly optimistic picture."
No, it comes from having a fairly detailed knowledge of the industry, and having watched the industry successfully meet it's projections for the last 30 years.
"For the past 6 years I have run this excercise to see comparative costs of PV vs grid and I don't think PV has gotten appreciably cheaper in that time period. "
Again, costs have fallen but prices haven't.
"what the future holds nobody can predict."
Not really true. You can look at the polysilicon plants that are in construction, and project accurately how that will change supply in 2 years. You can look at installation methods and accurately estimate how changes will change the costs. Professional engineers do this all the time, and it works.
If the local power company uses nuclear plants to produce their electricity, in all likelyhood you have forgotten to add the taxes you paid for federal support of nuclear technology and the completely unresolved end-of-life costs into the equation.
It is also likely that you live in a region where solar energy is not really a useful technology. There is quite a difference between a desert location where a good panel can return 40-50W/m^2 on average and a poorly suited area in the Northeast where it probably barely manages 15W/m^2 in a good year. You might want to do a comparison of solar water heating with rising oil/natural gas prices. I bet you will come out much better, if not even positive. And if you happen to live in a colder reagion and don't have it, yet, insulation will buy you way more for your money. Solar technology is not a solution to any and all local generation problems everywhere on the planet. Just like there are no large scale hydro-electric plants in the plains, there will never be much return on solar in the North.
Solar energy can be made to work on a large scale but it is also problematic to find investors for large scale plants because there are plenty of easier and faster ways for those investors to make money. One of them is to invest into solar startups which have 2-3 year exit opportunities into the markets. Why wait 40 years to make a few percent a year if you can triple your money in three?
Finally, the absolute price of energy is not as critical a factor as most people think. Germany has a large scale renwables program going on that to most Americans would look unprofitable. However, germany is currently getting close to producing 10% of its energy from renewables. There are several reasons for this trend which go far beyond simple economics of day tading prices:
1) Energy imports are expensive and uncertain. There is a strong economic and political need for the country to reduce its dependence on imports because the only rational bet is that in the future imports will become far more expensive or even dry up completely.
2) Renewables create jobs. Germany's most important economic and socio-political problem is unemployment. To employ people in a growing energy sector is far better than to pay them unemployment insurance.
3) Education. Germans have been brought up with a very positive moral attitude towards the environment. They do not judge a technology primarily by its cost but by how well it preserves the environment. This makes it relatively easy for politics to push (and pay for) technologies like wind and solar energy. There is a relative consensus among the young, tax paying population that they want to leave a better world for their children than they inherited from their parents.
Americans generally lack all three of these incentives and have a far more short sighted vision. It stands to reason that long term effects like those of PO are outside of America's current intellectual horizon and are thus being largely ignored. That is not a universal phenomenon, though.
ET,
The GDP concept and related measures was developed in large measure to help the U.S. and Britain mobilize resources to fight World War Two as effectively as possible. It served well in that regard, and the fact that the Allies had GDP data--and the Germans did not--helped the Allied economies to function much more efficiently than Germany's did until Speer took over in 1944, which, of course, was much too late to do the Germans any good.
GDP is not "just another number." On the contrary, it is a compilation and summary of a great many other numbers. It is NOT a measure of human happiness. Maximization of GDP does NOT necessarily maximize human welfare. However, having said all that, to evaluate the burden of military spending and estimate how much civilian production could be diverted to military use (and what would be the consequences of such diversion), GDP data are the sine qua non.
The U.S. economy is big, and to realize just how big it is and whether it is growing or not, we have to look at GDP and related numbers. Otherwise we're just blowing smoke.
Don,
No need to be entirely patronizing.
I'll just leave it at that and hope fervently that we never have opportunity to find out if you are right.
If you think the US Treasury can come up with another trillion or two to finance a much larger military, fine, you're the economist.
With that would go a much larger standing army. Do you really think it's possible to double recruiting? To institute a draft that would double the size of the Army?
This ain't Sparta.
Precisely! Apparently the Army and the Marines already have trouble making the numbers, and this is on the basis of bribery, lies, and letting any old illiterate criminal into the military.
But as you say, it ain't Sparta. The Spartans were, of course, famous for being good at fighting, something that doesn't pertain to the US except in the realm of myth. Whether or not the Chinese and the Japanese are dumb enough and/or unprincipled enough to lend the money (and let's face it, that's the way it's been so far), we have to face the essential uselessness of the US military for its advertised task.
The secret is that force often does not work very well. The greatest military of modern times, the Wehrmacht, still got thrashed. Those people were actually good at war. And they still lost. So we may safely say that there is no way a bunch of incompetents are going to succeed at ruling the world through force of arms when even the Germans couldn't manage it. The US has really got by on soft power for fifty years, and now that is being squandered in favour of strategic blunders and stupid military posturing. The nation will learn the hard way just how pointless all this has been.
sailorman, your post puzzles me, increased military spending would be increased debt spending and i guess i have to ask how high does the debt have to go before it becomes a "strain". ie do you see a limit to keynsian economics ?
memo to taxpayers: gwb has run up a $ 3 trillion debt on YOUR credit card
You ask an excellent question to which there is no brief and satisfactory answer. The best answers I think are to be found by looking at historical cases where governments borrowed "too much" and got into serious trouble from such activities. Almost invariably we see cases of third-world governments (e.g. Argentina or Mexico) that borrowed and printed money to finance spending for political popularity--or, on the other hand, advanced economies, such as that of Britain, that borrowed prodigeously during both World Wars with very severe consequences after the wars.
If debt is growing faster than nominal GDP, then you know something: That cannot go on indefinitely. As a percentage of GDP our current debt levels are manageable, but what is worrisome is the large deficits that increase debt as a percent of GDP.
Of the three kinds of U.S. debt--consumer, business, and governmental, I think the most dangerous kind is consumer debt, the second most dangerous is business debt, and the federal debt (while a matter of legitimate concern) is least dangerous of the three kinds.
Note that as a last resort, the Federal Reserve System can monetize the U.S. government debt; it has done so in the past and stands ready to do so in the future if necessary to avoid debt deflation caused by financial collapses.
Growth in consumer debt is the crack cocaine type of addiction that has fueled U.S. economic growth for the past twenty years. I predict this addiction will not last another twenty years--and detox will be nasty.
sailorman, thank you for the response and i do value your opinions and insights. but i am wondering exactly what you mean by monetizing the debt. i have heard the term monetizing used in various contexts, one such refers to the government buying it's own debt.
Here is how "monetizing the debt" works:
1. The government (say, U.S. government) runs huge budget deficits.
2. The central bank (the Fed) buys U.S. government debt aggresively and with no limit.
3. This purchase of U.S. Government securities greatly increases bank reserves.
4. Banks use their greatly increased reserves to buy up the U.S. Government debt--i.e. lend money without limit to the U.S. government. They can also make more loans to consumers and businesses.
5. Whenever the Fed buys U.S. government securities it has the potential to create new money: Thus when the Fed does this flat out it is called monetizing the debt.
Note that in effect this is printing money--but is slightly more complicated. Monetization of debt is prerequisite to runaway inflation.
ok thank you again i thought the treasury was "buying" its own debt indirectly via phoney offshore accounts (carabian bank accounts) and i still think this is a possibility
Oh boy. A 3.5% rise (as a % of gdp) in US Federal Government spending?
Or put it another way, a 1/5th rise in the total tax take of the US government. Everyone takes their current tax bill, and increases it by 1/5th *and* the US finds new taxes to extract an equivalent amount by other means.
The US government has not spent 7% of GDP on defence since the end of the Vietnam War. In the meantime, the burden of Medicare and other health care related expenditures has risen dramatically (despite all the horror stories, Social Security is actually in pretty good shape).
Even under Ronald Reagan, at the bottom of the worst recession since the war, military spending was less than 6% of GDP.
I don't think the US is in any position to increase defence spending by the amount you suggest. The taxpayer won't stand for it, and the impact on the overall economy would be huge.
In addition, the US already spends more on defence than the next 20 countries combined: put it another way, half of the world's spending on defence is by the US government.
What exactly would the US spend it on? More fighter planes to fight air to air battles with non-existent opponents?
Or as Robert de Niro put it so aptly in Wag the Dog: 'what , a 2 ocean war? With Togo and Sweden?'.
If the US say wanted to double the number of soldiers in uniform (Army and Marines), it could only do so with a draft. There aren't enough 18-21 year olds who could be recruited by any inducement-- not to produce 600,000 new bodies. Once again, a complete political nonstarter.