Unacceptable, Chairman Greenspan

This entry was posted on 10/10/2007 10:45 PM and is filed under OIL,Leadership.

Former Federal Reserve Chairman Alan Greenspan is by most accounts a smart man.  But, what are his values?  Based on a statement in his memoir released last month, he most values short-term economic gain.

    "....the removal of Saddam Hussein had been 'essential' to secure world oil supplies, a point he emphasized to the White House in private conversations before the 2003 invasion of Iraq.  Greenspan said disruption of even 3 to 4 million barrels a day could translate into oil prices as high as $120 a barrel -- far above even the recent highs of $80 set last week -- and the loss of anything more would mean "chaos" to the global economy."

Coalition soldiers lives -- he doesn't care.  Iraqi citizens - he doesn't care.  What if we actually had set an energy policy that would reduce our unsustainable level of consumption?

Can he see beyond traditional economics?  Is he a leader?  No and no.

Chairman Greenspan, what do you say to statements by Paul Hawken such as: 

   - Conventional economic theories will not guide our future for a simple reason: They have never placed "natural capital" on the balance sheet. When it is included, not as a free amenity or as a putative infinite supply, but as an integral and valuable part of the production process, everything changes. Prices, costs, and what is and isn't economically sound change dramatically.  "Natural capital" .... comprises the resources we use, both nonrenewable (oil, coal, metal ore) and renewable (forests, fisheries, grasslands).

   - Let's begin with a startling possibility: The U.S. economy may not be growing at all, and may have ceased growing nearly 25 years ago........  The GDP measures money transactions on the assumption that when a dollar changes hands, economic growth occurs. But there is a world of difference between financial exchanges and growth. Compare an addition to your home to a two-month stay in the hospital for injuries you suffered during a mugging. Say both cost the same. Which is growth? The GDP makes no distinction.

This is not a rhetorical question.

You've had a huge part in the U.S. being in the energy mess we're in.  But heck, fossil-based energy was the "fuel" that propelled economic gains during your stay.

His (supposed) successful run as Fed Chairman (1987-2006) was largely the result of .... huge production increases and favorable prices of..........oil.

 

                                   Greenspan                          Greenspan

                                       starts                                  departs

 

                                        1987              1998                2005 (last year oil consumption
                                                                                              data from EIA available)               

Oil (U.S. consumption;

Total Crude Oil &
Petroleum Products
(thousand barrels)           6,082,742        6,904,756         7,592,789  (25% incr. over 1987)

 

Oil ($/barrel;

adj. for inflation)                 $25.68            $12.66              $47.97  (Sept. 2007; up to $80)

 

Gasoline ($/gal.;

adj. for inflation)                  $1.75              $1.55                $1.80

 

 

I think you did a terrible job.

You were a driver behind our squandering our natural resources for short-term economic gain.  What do you say to families that have lost sons and daughters in this war for oil that you helped create?

What do you say to future generations?  What did you do for them?  What did you help steal from them?

Chairman Bernanke, your turn.

        

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Comments

• 10/11/2007 6:00 AM Mark Jeantheau wrote:
  
  Excellent stuff, and an essential piece of the puzzle. If you look at:
  -- the importance of "Petrodollars" to continued US economic hegemony (even in the face of huge current-account deficits),
  -- the essential nature of oil-based products in our way of life,
  -- AND you want to be totally Machiavellian about it...
  Well, then, you could say that the "Secure Iraq's Oil" plan was a brilliant strategy. Iraq has 20% of the known oil reserves, it's run by a guy we supposedly hate (even though he is a former ally), and he tried to kill the prez's daddy. Perfect. (Oh and let's not forget the never-mentioned reason---Saddam was moving away from accepting dollars for his oil. VERY bad for the US.)
  
  But if you see life on the planet as something more than a game of Risk, then you'd have to reject the "Cheney plan" in the strongest terms as amoral. I find especially objectionable his pursuit of this plan at the same time he was making derisive comments about conservation---the one thing that will ultimately be required of everyone on the planet (but especially in the US) so we can match our energy supplies to our energy demands.
  
  Back to Greenspan. Having lived through the 1970s, in the 1990s I thought old Al was a genius because he had figured out how to keep inflation low. More recently I realized it was all a mirage---the official "core inflation rate" grossly understates the true rate of inflation, a tactic designed to keep us in a state of hazy state of thinking everything is just peachy, with wallets open and brains entranced by visions of unfettered consumerism. But as they guys over at Financial Sense have cleverly put it, the core inflation rate includes everything important---except for anything that goes up.
  Worse than this, Greenspan's lavish rate cuts in the early 2000's set up many homeowners for a lot of heartache when their ARMs reset. The mess with low-end mortgages and CDOs is just the beginning---there is huge turmoil in the financial system. You won't see much about the problems in the mainstream press, but should all be paying close attention to this!
  
  Bubbles Greenspan and Helicopter Ben, between them, are the Dynamic Duo of Disaster.
  
  Mark
  
  P.S. One thing to note---the oil usage stats Paul used are stated in annual terms. That threw me initially---I am more familiar with "21 million barrels per day"---but his numbers are right. Either way, US usage is about 25% of global use.
  Reply to this
• 10/11/2007 6:05 AM Mark Jeantheau wrote:
  To clarify...
  
  Bubbles Greenspan -- because he has created two of the largest speculative bubbles in history (the tech-stock bubble of the 1990s and the real-estate bubble of the 2000s)
  
  Helicopter Ben -- because he claimed once in a speech that he could fix any recession (or threat of recession) by throwing dollars out of a helicopter (i.e. injecting new money into the system). Apparently he's trying this now as a way to fix the liquidity crisis---the Fed is injecting new money and cutting core rates like mad. Can you say "hyperinflation"? Sure.
  Reply to this
• 10/12/2007 8:23 AM Jim Blair wrote:
  Hi,
  
  While it is considered to be the conventional wisdom, I don't see any basis for the claim that Iraq was invaded to "secure oil". Before the invasion we were already getting all the oil Iraq could pump under the "oil for food" (OK so it was really oil for palaces).
  
  The more accurate evaluation was that we (the oil consumers of the world) were willing to over-look the way a brutal dictator treated his people so long as he sold us his oil.
  
  Oil dependency goes both ways: sure consumers are addicted to buying it, but exporters are also addicted--to selling it. What else can they do with it?
  
  The world oil market is one big pot. All exports go into it and all consumers draw from it. And the price is determined by that balance. We are getting less oil from Iraq today than before the invasion, demand continues to increase, and the price is increasing.
  Reply to this
• 10/14/2007 3:13 PM Jim Blair wrote:
  Hi,
  
  A few more comments. The "core" inflation rate (subtracting energy and food) has been about equal to the total inflation rate when averaged over several years. That is why it is seen as a "better" indicator in the short run: it is not driven up or down by the short term and seasonal variability of food and energy prices.
  Probably a better measure of long term inflation is a "trimmed" CPI.
  
  See
  
  http://dallasfed.org/research/swe/2005/swe0503b.html
  
  The "energy and food" deducted core CPI has probably lost its usefulness since the recent increases in both oil and food prices are probably not "short term" events that will soon be offset by sharp declines as in the past.
  
  And the idea that there are a limited number of "natural resources" that we deplete and so reduce them for the future, while commonly accepted without question, is wrong. "Resources" are created by technology from formerly less valued material.
  
  Two examples: before the late 1800's petroleum was useless gunk that ruined farms. It was Henry Ford and cars that transformed it into a "valuable resource". If we move to a hydrogen economy, it may again become useless gunk.
  
  And uranium. During the 1950's when nuclear power looked like the energy source of the future, uranium ore, in Africa especially, became a valuable natural resource that many corporations were after. But when nuclear power fell out of favor in the
  US and Europe, that "valuable" African uranium ore became another form of dirt not worth mining. It made these changes in value without changing, and as the result of attitudes in the industrial world.
  Reply to this
  1. 10/14/2007 7:55 PM Paul Riehemann wrote:
     
     Thanks for your comments.
     
     It seems that fossil fuels are extremely valuable in their concentration of energy and relative ease of use.  Burning coal for example.  Fossil fuels have been easy to get, transport, and use.
     
     They are of finite amount and there is no replacement that is of similar value as an energy source - the reason we're "addicted."  We need to recognize the fact that non-renewable sources of energy are finite as an external cost - kind of an insurance plan so we are sure we have alternatives.  All other external costs, such as greenhouse gas emissions, also need to be included in the price of sources of energy - this includes renewable power (although their external costs are much lower).  No wars for wind and sun.
     
     The best way to do this is through a phased-in federal tax shift from income to non-renewable energy.  As the external costs of various fuels are included, the market will adjust and:
       - we'll use less energy;
       - a higher percentage of our energy will come from non-renewable energy sources;
       - the renewable energy industry in the U.S. will become a mighty economic engine - both for domestic products and export.
     
     Reply to this
• 10/16/2007 7:33 AM Mark Jeantheau wrote:
  Hello again --
  
  << While it is considered to be the conventional wisdom, I don't see any basis for the claim that Iraq was invaded to "secure oil". >>
  
  Two-thirds of the remaining conventional oil reserves are in the Middle East. Iraq is over a large portion of that, and it was an easy target. But the Bush Administration grossly underestimated the resistance they would encounter and have generally botched the job. The ongoing chaos and failure to reestablish the infrastructure are a large part of the reason less Iraqi oil is being pumped today than before the invasion. But this was unknown and unpredictable---if you had suggested to Dick Cheney in early 2003 that we'd be getting less oil from Iraq in 2007, I think he would have laughed.
  
  More broadly, in the late 1990s and early 2000s, there were rumblings in Saudi Arabia---a main place of military concentration in the Middle East---that our bases were not going to be welcome there for much longer. So establishing a new stronghold in the Middle East was another part of the objective in Iraq, and the heavily fortified "embassy compound" in Iraq indicates that our base there is intended to be permanent.
  
  Finally, beyond the fact that this war has been extremely profitable for a large number of corporations that supply military services and material, it's US and British oil companies that are in line to get the oil concessions in Iraq.
  
  It's absolutely true that the citizens of the world (and particularly in the US) are guilty of gluttonous behavior when it comes to oil. But in this country, there's been no move to indicate to consumers that there's any problem with that behavior. The gas-line lessons of the 1970s are long forgotten, and cleverly cloaked supply-side stratagems like Iraq War II have replaced any honest discussion of the problem. Bush's declaration that we are addicted to oil was mostly an admission that their grand scheme wasn't working out so well so we'd better start waking up to the fact that we have a problem. Not that he's pushing good solutions---the Energy Bill of 2005 funded mostly the same old things.
  
  << The more accurate evaluation was that we (the oil consumers of the world) were willing to over-look the way a brutal dictator treated his people so long as he sold us his oil. >>
  
  Fairly true. And we ignore brutal dictators all over the world, especially when they have no natural resources for us to exploit. But I stand by my statement that it was not Saddam refusing to sell us oil that was a problem, it was his move to selling his oil in something other than (petro)dollars. That is becoming more commonplace right now, which is one of the reasons the US dollar is under great attack in the global financial system. But back then, it was a move that no one dared even talk about. Saddam's move could not be let go uncorrected.
  
  Mark
  Reply to this
• 10/16/2007 7:34 AM Mark Jeantheau wrote:
  << consumers are addicted to buying it, but exporters are also addicted--to selling it. What else can they do with it? >>
  
  True, but being more restrained about how they pump it---i.e. keeping supplies tight---is a smart strategy, since it keeps the prices up. That also strings out the timeframe over which they will have oil to sell and increases the total profit from their single, limited resource.
  
  << The "energy and food" deducted core CPI has probably lost its usefulness since the recent increases in both oil and food prices are probably not "short term" events that will soon be offset by sharp declines as in the past. >>
  
  Agree, but that will not stop politicians from spinning the inflation-rate numbers in whatever way best serves their interests. The truth is not one of those interests.
  
  << And the idea that there are a limited number of "natural resources" that we deplete and so reduce them for the future, while commonly accepted without question, is wrong. "Resources" are created by technology from formerly less valued material. >>
  
  This is only true if:
  (a) technologists are funded to develop long-term advances; and
  (b) population and per-capita demand do not outpace advances in efficiency and development of alternatives when supplies of some resources wane; and
  (c) there is abundant, reasonably priced energy available so that technological advances are not constrained.
  
  If you want to bet on all of these factors being there for us in the future, go ahead, but I think the high prices for oil and industrial metals we're currently seeing are at least partly based on demand outpacing supplies and alternative solutions. We're facing a future of constrained energy and constrained resources (relative to population and demand), and I do not believe technology and markets are up to the job of fixing it.
  
  Just because coal replaced wood (and solved the fuel-wood problem), and then oil replaced coal (for transportation) and helped reduce then-horrendous coal pollution, it does not mean that there will be a new, equivalently wonderful resource to replace oil. Petroleum will be found to have been unique for its energy density, availability, transportability, and flexibility. There are ways to mitigate the peak oil problem and many of these will be pursued, for better or for worse. But without a radical change in mindset, "technology will not save us" all by itself.
  
  Finally, increased prices do make previously uneconomic resources worth exploiting. But usually this means more pollution (because they're low-grade resources) and more energy inputs for refining. In an environment of ever-tightening energy supplies and an increasingly urgent need to reduce energy-based air emissions so we don't cook the planet, the effectiveness of market forces to guide technology in a way that solves the problem seems very doubtful. If something doesn't boost next-quarter profits, how much does the market care?
  
  Mark
  Reply to this
• 10/26/2007 3:32 PM Jim Blair wrote:
  Hi,
  
  Sure coal and oil are rich sources of energy, easy to utilize. That is why we switched to them--before the problems with CO2 were recognized.
  
  The most dense potential source of energy, and one that is very available, is water. Rather the hydrogen in water, which can be fused to helium with an huge energy release. Cups of water could power cities for days, etc. The only problem is that today no one knows how to tap that source. Rather like iron was during the stone, copper and bronze ages: it was there, but people didn't know how to smelt it.
  
  We can hope that higher oil prices will stimulate the development of alternatives to it. Note that the Saudi oil minister has tried to keep the price of oil from rising "too high" out of fear that we will get serious about looking for alternatives. OK, he says he doesn't want to trigger a world wide recession, but I think his real fear is oil consumers looking for alternative energy sources.
  Reply to this
  1. 10/28/2007 9:57 PM Paul Riehemann wrote:
     
     <We can hope that higher oil prices will stimulate the development of alternatives to it. Note that the Saudi oil minister has tried to keep the price of oil from rising "too high" out of fear that we will get serious about looking for alternatives. OK, he says he doesn't want to trigger a world wide recession, but I think his real fear is oil consumers looking for alternative energy sources.>
     
     I agree with everything except for the "hope" part.  Let's enact a phased-in federal tax shift from income to non-renewable energy TO STIMULATE the development of alternative energy sources in the U.S.  Agreed, because of our addiction to oil, OPEC has incredible control over the U.S. -- and it's getting worse (for us) every day.
     Reply to this
• 10/29/2007 7:33 AM Jim Blair wrote:
  Hi,
  
  Again the problem is limiting the search for non-fossil fuel energy to "renewable".
  
  Hydrogen fusion for example could provide practically unlimited GHG emission free energy at very low cost. But since the hydrogen would be irreversibly transmitted into He, the process is not "renewable". Should that make it subject to your tax?
  Reply to this
  1. 10/29/2007 7:50 PM Paul Riehemann wrote:
     
     <Again the problem is limiting the search for non-fossil fuel energy to "renewable".>
     
     I don't think this is a problem; non-renewable energy gets taxed additionally because of........... non-renewable energy's extremely high external costs.
     
     -----------
     For hydrogen fusion, your question is moot.  Since it is not generating power commercially, how could we tax it?  Let's stick with the REAL problems and REAL possible solutions we face.
     
     
     P.S. - A quick search found this on Wikipedia for Fusion Power:  (certainly good to learn about it -- thanks for bringing this up)
     
     

          Fusion power has been touted as a "renewable" energy source. This is technically not correct - any scaled-up use of fusion power would consume more deuterium than the Earth would receive from cosmic sources. Heavy water is the only sizable natural source of deuterium on Earth. Over time, a stable fusion economy would slowly but steadily deplete the concentration of heavy water in the planet's water bodies from the natural ratio of one deuterium atom for approximately every 6400 protium atoms (i.e. one heavy water molecule per 3200 water molecules) as depleted stocks of water return to the planet's water bodies. Unless total energy consumption on the planet was increased by several orders of magnitude, then this would not pose a serious problem for millennia as the total amount of deuterium in the planet's oceans is estimated to contain at least fifty million times the equivalent energy content in the planet's remaining fossil fuel supplies. If the entire planet scaled up its per-capita energy consumption to the level of Qatar (which consumes almost three times the energy consumed per capita compared to the United States) using fusion power, then even with a world population exceeding ten billion the planet's deuterium reserves would still last for thousands of years at least. Nonetheless, over many centuries the energy costs related to extracting deuterium would steadily increase as the concentration of deuterium in natural sources steadily decreased (assuming no improvements were made to the extraction technology and methods). In the hypothetical event that humanity sustains itself for several millennia primarily on fusion power, then deuterium depletion could potentially create major challenges for our distant descendants.
     
     and this:
     
     Economics

          It is far from clear whether nuclear fusion will be economically competitive with other forms of power. The many estimates that have been made of the cost of fusion power cover a wide range, and indirect costs of and subsidies for fusion power and its alternatives make any cost comparison difficult.
     
     
     P.S.S. - do YOU think we should enact a phased-in, federal tax shift from income to non-renewable energy?  Why or why not?
     

     
     Reply to this
• 10/29/2007 11:01 AM Mark Jeantheau wrote:
  
  << The most dense potential source of energy, and one that is very available, is water. >>
  
  If you want to bet on whether the technical issues with getting energy out of water will be solved in a timeframe meaningful to the emerging energy constriction, I'll take that bet.
  
  Fusion energy based on deuterium (heavy water) has been "a few decades away" for ... um... a few decades. In two or three more decades, I suspect it will still be a few decades away from practicality. I with we COULD get fusion working, because it would solve a lot of problems. But it seems pretty far in the future based on the current state of science.
  
  Other methods of extracting energy from water are pure fantasy at this point; and, more importantly, talking about "energy from water" is a distraction from other solutions that have the potential to make a difference in the timeframe that counts.
  
  Mark
  
  Reply to this
• 10/31/2007 8:21 AM Jim Blair wrote:
  Hi,
  
  Yes practical hydrogen fusion has been "decades away" for decades. Just like practical solar power has been.
  Reply to this
  1. 10/31/2007 10:15 PM Paul Riehemann wrote:
     
     Seems to be working to me - Solarbuzz
     
     Articles from just today:
     
     Oct 31, 2007
     San Rafael, CA USA: EI Solutions Powers on the Largest Solar Facility in the Pacific Northwest. System integrator, EI Solutions has recently completed construction on the main portion of the Pacific Northwest’s largest solar-powered generating facility for Puget Sound Energy, a utility subsidiary of Puget Energy.
     
     Oct 31, 2007
     Huntington Beach, CA, USA: Sharp Delivers Solar Electricity Systems to New Clarum Homes Community. Sharp has designed and provided the solar electricity systems for all of the residences in Clarum Homes' new Hamilton Park community in Menlo Park, California near Stanford University.
     
     *****************************
     
     How much better would solar power be doing economically now if all energy sources were paying their full external costs?  What if solar had received a larger percentage of the subsidies that went to nuclear?
     
     It's time to "turn the ship around" with a federal tax shift.
     
     Reply to this
• 11/6/2007 8:21 PM Jim Blair wrote:
  Hi,
  
  I tried all 3 of your links above, but none of them connected. I am curious to see what kind of systems they are building. Some claim PV is best, others say focusing sunlight to heat water to steam.
  
  I'm not surprised that California has all of them. During the energy crisis of the 1970's there was a big push in CA to use solar. But today the fraction of electricity from solar there is so small that I can't read it from a graph of sources. That does understate the total because of passive solar heating and domestic hot water heaters for home and swimming pools, etc. that don't show up in energy production.
  
  But still, in a place with a lot more sunshine that the US average, solar provides very little. CA even imports about 1/4 of its electricity from other states.
  Reply to this
  1. 11/7/2007 10:35 PM Paul Riehemann wrote:
     
     Thank you for pointing out this problem - fixed now.  Here are two additional articles:
     
       Nov 6, 2007
     Los Angeles, CA, USA: Solar Integrated Wins US Government Contracts. Solar Integrated Technologies, a provider of building integrated photovoltaic (BIPV) roofing systems, has been awarded three new contracts to supply and install innovative BIPV roofing systems.
     
       Nov 6, 2007
     Fresno, CA, USA: Fresno State Switches on Solar Power. A new solar-paneled parking structure at California State University, Fresno, officially switches on during ceremonies Thursday.
     
     **************
     
     Agreed, a very small percentage of our energy comes from renewable power.  From the first solve4biggies.com post in February 2007:
     
          "This industry [renewable energy] has been hindered by cheap energy, growing by only ½ of 1% between 1985 and 2005 (Energy Information Administration Monthly Energy Review - page 7)."
     
     Why is non-renewable energy cheap?  Because we're not paying the external costs of using it - for example:
         - global warming;
         - the belief by some of our elected representatives that we need to lose lives and spend billions of dollars in attempts to protect our energy interests;
         - the unfunded costs of safely storing current and future nuclear waste (oh yeah, and transporting to the repository should the first one ever be opened and the second one (needed by 2014) ever sited, built and opened.)
     
     
     Reply to this
• 11/8/2007 6:39 AM Mark Jeantheau wrote:
  I agree that for large-scale implementation, solar PV is still not attractive from a cost standpoint, though it looks a lot better on a relative basis if the external costs are wrapped back into coal and nuclear. But putting solar PV in the same bucket as fusion is silly. Solar PV works today and works well, even if it is pricey. I say this as the owner of a 5.4KW system.
  
  The real tragedy of solar energy is that we as a society have waited so long implement passive solar and solar hot water, both of which are well understood, well developed, and very cost effective. For new homes, they're both a no-brainer to include, yet in the massive homebuilding bonanza of the last few decades, there was no substantial penetration of these technologies into new homes. That is not the fault of the technologies.
  
  It's not too late on those two fronts. Solar hot water can be added to existing homes, assuming they have enough sun in their area---and most homes will. Passive solar add-on kits are also available---not as good as designing a passive solar home from the get-go, but still worth considering for anyone who wants to be less reliant on the grid and save money in the long run.
  
  I wrote a primer on the tradeoffs regarding various forms of solar energy. You can find it at Grinning Planet in the articles section---look for "Home Solar Energy".
  
  Mark
  Reply to this
• 11/10/2007 10:32 AM Jim Blair wrote:
  Hi,
  
  I doubt that solar of any kind will ever play much of a role in Wisconsin. When the temperature drops below freezing, solar water heaters need to have the added complication of a heat exchanger which both adds to cost and reduces the efficiency. Most yards here also have lots trees that shade the house during summer.
  
  I agree that solar heated domestic water should be used a lot more in the desert, and they are commonly included on new housing roofs in Israel, where they are very effective.
  
  On hydrogen fusion, potentially the best solution (even if "non-renewable" , I expect that it will appear on the scene rather suddenly, not as a slow evolution. Recall the excitement some years ago when a Brit and a guy from Utah claimed they had demonstrated Cold Fusion.
  
  http://en.wikipedia.org/wiki/Cold_fusion
  Reply to this

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