Quote of the Day
If a man will begin with certainties, he shall end in doubts; but if he will be content to begin with doubts he shall end in certainties.
Sir Francis Bacon
The FY2011 Budget Fix: A Commentary
The budget fix, about $38.5B, is being widely hyped as the biggest spending cut in history. I applaud Speaker of the House John Boehner for getting cuts that seemed unattainable just days ago. The Democrats can make much of the fact that the GOP didn't get its way on the Planned Parenthood funding, but the very fact that President Obama and Senate Majority Reid agreed to a $79B cut from what Obama wanted in domestic spending for FY2011, and a comparable decrease from FY2010 levels, which wouldn't have been necessary if they had passed a full budget 6 months ago with super-majorities in the last Congress, suggests that they realized a government shutdown wasn't in their own political best interests.
While I was on a Metro train yesterday, I noticed a posted ad from NARFE, ominously noting that the Congress was out to make Draconian cuts in federal employee/retiree benefits, no doubt looking to piggyback off the self-indulgent Wisconsin teachers and other public employees, aghast at being asked to live with but a pale shadow of the economic uncertainties and sacrifice we in the private sector face during recessionary times (because, after all, public sector employees are "more equal" and "more important"). I saw one particularly hostile looking gentleman on Fox News this morning, indignant at the very idea that some 800,000 federal employees were deemed "non-essential" and had to deal with the uncertainty of pay and related issues.
This may shock some of my fellow conservatives, but I don't believe in double standards. I criticized Governor Walker (R-WI) for keeping police and firefighters outside collective bargaining reform. I also don't believe teachers, military personnel, doctors or any other "sacred cow" is deserving of special treatment. This doesn't mean I don't appreciate or value public sector employees. What I don't like is the implicit elitism. For example, I think it's ridiculous that someone in the military would be more worried about whether a government which has paid off its debt reliably through its history is going to pay off its employee obligations, than some sniper on a Middle East roof. If any federal employee really believes he or she can't trust the US government, then, by all means, he should quit. (The military has a multi-year commitment, but you can decide not to reenlist.)
I was annoyed at how Boehner, Reid, and Obama were trying to hash out the issues of Planned Parenthood subsidies, EPA regulation of greenhouse gases, and DC abortions and school vouchers. (The first two were resolved in favor of the Democrats.) This were primarily symbolic issues, not exactly representative of a $3.6T budget.
I will say this, particularly in reference to Congresswoman Slaughter's outrageous allegation that by reducing or eliminating Planned Parenthood subsidies, the real motivation of the House GOP was to "kill women". First of all, in dealing with a $1.6T deficit, the government has to look at cutting back unnecessary spending. Planned Parenthood gets a government subsidy of $383M, one third of its funding. The fact of the matter is that money is fungible, and other sponsors are willing to fully offset a federal prohibition on dedicated funds for abortion (by some estimates, over a third of the organization's revenues). The federal government sponsors more comprehensive health care through other providers; I do not see any legitimate need for funding an advocacy, never mind one which has been exposed through recent stings to be questionable in compliance with relevant local regulations.
Am I happy with the agreement? You can put lipstick on a pig, but it's still a pig. The fact is that over a third of the budget is being paid with borrowed money. We now have a national debt big enough to have a negative impact on economic growth. It's difficult to see how we get to a balanced budget, never mind retire some of the debt accumulated during the Obama Administration. I suspect that nothing out of the budget fix involved some of the biggest outlays, including the defense budget and entitlements. Nevertheless, it is a first step and showed that Speaker Boehner was able to keep his caucus in check and avoid a potentially politically damaging government shutdown (in the eyes of independents and moderates).
Energy Politics: Subsidies of Oil and Gas?
I don't want to make this blog a primer on basic accounting, but let me provide a simplified conceptual overview of the key point. Accountants want a fair statement of a company's operations, resources, and obligations. The upfront costs of acquiring or developing some limited-life asset can be significant. If you expense them at the front end, say, for tax reasons, you are effectively understating this period's income and overstating subsequent period incomes--because you will be getting some future benefit from the asset. [I should note that natural gas producers are allowed to expense exploration and development expenses which violates this concept.] Accountants believe that the costs of that asset should be matched up against the lifetime utilization of that asset. Probably more controversial is the way you account for that with oil and gas or minerals: cost depletion or percentage depletion allowance.
Cost depletion works as the layman might expect; for example, if you have 10 million barrels of extractable oil, and you pump out 1 million barrels, you can deduct 10% of your resource acquisition/development cost. Percentage depletion allows you to deduct a set percentage of your relevant sales, without an overall cap. The controversy is that the cumulative depletion can exceed the original acquisition/development cost; proponents argue that it is a necessary incentive given the higher risks, the low-hanging fruit have already been discovered; the anti-fossil fuel advocates argue that the long-term tax deductions (after cumulative cost recovery) are a windfall subsidy, unnecessary at today's energy prices.
Where do I stand? I am a free-market proponent. I think the federal government obfuscates things with ill-considered, counterproductive policies. There are a couple of motivating questions regarding government policies: Do the subsidies lower the price of energy below market price? Do existing prices (including any relevant government taxes or other policies) adequately reflect long-term (environmental or other human) costs?
One can point out that the impact of fossil fuel subsidies is negligible, e.g., we have about $1.5B per year for oil and gas versus roughly $9-11B overall subsidies. The subsidies account for roughly 1% of energy costs overall (using 1999 data.) The largest percentage subsidies were for renewals (about 25%) and nuclear (15%, not including full liability cost subsidies); fossil fuels range from about 0.25% to 2%). With regards to the second question, costs to human health are fuzzier measures, with some estimates showing a slight bias in favor of coal producers and against natural gas.
I can only speculate for why some moderate and conservative federal legislators might resist dealing with the two exceptions to cost depletion accounting above: parochial energy-producing district/state interests and a discriminatory federal policy regarding other types of energy or industry subsidies. For example, Gulf Coast states might argue it's hypocritical for the legislature to deal with energy subsidies but not farm subsidies or to single out fossil fuels when we are currently obtaining most of our oil externally; and the massive subsidies thrown at renewable sources (and to a lesser extent, nuclear) over the last few decades are far more material. In fact, most progressives inconsistently argue in one breath that market oil prices are incentive enough for oil producers but substitute energy sources don't have incentive enough.
There are other relevant discussions of questionable government policies/regulations from CATO and other sources: for example, the strategic petroleum reserve, slack power utility capacity, or power producer subsidies of energy conservation investments which have modest impacts (less than 1%) on consumption, at a cost nearly twice that of generating additional power.
My position: the government needs to eliminate federal subsidies across the board, and it also should also get out of the way of energy exploration. President Obama's "leadership" consists of little more than a broken-record recitation that "we can't drill our way out of this". The energy companies were discussing tertiary recovery while I was working in Houston in the 1980's. I'm more concerned about easy money policies fueling energy inflation, the need for an expanded military presence to ensure economic security (e.g., transport of oil tankers) and providing autocratic, dysfunctional oil exporters with windfall revenues because of misguided domestic natural resource constraints.
A Piece of Art Inspired by Obama and the 111th Congress
Fukushima Nuclear Incident Update
Atomic Power Review notes:
- late yesterday: The blogger notes a reversal of trend of lowering temperature and pressure in reactor 1. There had been earlier reports of reduced coolant injections to reactor pressurized vessels in an attempt to control undiagnosed leaks of contaminated water; there is also speculation on any effect on reactor 1 through 3 cores during the other day's 7.1 Richter scale earthquake. Again, we need to see more transparency from TEPCO and/or the Japanese government.
- morning: There is ongoing concern about rising water in trenches (reactor 2), although we are still days from any overflow threat. There is also a post-audit concern about increasing the level of redundancy for backup generators.
IAEA notes:
- daily: There is an aggregate total of about 60,000 contaminated tons of water from trenches and basements to be removed so to enable continued work on instrumental and component/equipment repair and replacement. There is some suspicion that pressure indicators for reactor 1 may be unreliable. The temperature readings for the reactor pressurized vessels remain above the 95 degrees Celsius serving as a benchmark for cold shutdown (reactor 3 comes closest).
NEI notes:
- daily: Ambient radiation levels continue to decline, and reactor pressurized vessels and spent fuel pools are replenished on an ongoing basis. Discharge of low-contaminated water from a storage tank to the ocean should be completed by tomorrow; after double-checking the storage tank for any earthquake damage, we should finally see movement on moving higher-contaminated water to it, ultimately making room for the dewatering of trench and basement water discussed above. There are plans for a drone helicopter with infrared photo equipment to survey the site for any issues from less accessible areas.
The Hiroshima blogger is back today. He reported a couple of offensive Hiroshima Syndrome pieces, including an Ohio newspaper editorial cartoon showing mushroom clouds over the three Daiichi reactors and a false British Daily Mail claim of 5 fatalities as a result of the Fukushima Daiichi nuclear incident. He notes that sea samples have been delayed by weather conditions, and the post-aftershock (earlier this week) reactor 1 temperature is stabilizing. He has a theoretical discussion regarding what he considers unexpectedly high readings in nearby cities some miles away, speculating that the areas in question may have a naturally higher baseline. He discusses steel sheeting of the seawater inlet for reactor 2 as a further step to stop observed leaks, much of which was stopped by sealing the cable pit with liquid glass.
Political Humor
"Donald Trump said he can’t make a decision on running for president until this season of “Celebrity Apprentice” is over. That may be the best excuse ever for postponing a run for the presidency." - Jimmy Kimmel
[President Obama also said he can't make a decision until this season of "Celebrity Apprentice" is over. And then some.]
President Obama announced that he will run for re-election in 2012. His new slogan is “Change you can believe in — this time, I promise.” - Jay Leno
[Obama believes that he has delivered on change--his belief in the individual mandate for health insurance, no more Gitmo, civilian trials for international terrorists, the Bush tax cuts, the number of federal employees, federal deficits, the national debt, control of the House of Representatives, etc.]
Musical Interlude: My Favorite Groups
ABBA, "Knowing Me, Knowing You". Simply the greatest breakup song ever. The introductory cadence and arrangement are memorable and distinctive; the line "in these old familiar rooms children would play" is a poignant reminder of one's initial hopeful dream of marriage and family.
