by Steven Waechter | Mar 7, 2012
I recently heard a radio commercial urging me to contact various members of Congress to voice my support for tax credits connected to the wind energy industry. On a lark, I went to the Iowa Legislature website and searched active bills for the word “wind,†and received several dozen hits, many of which seemed to be focused on state tax credits for manufacturing and installing wind turbines. Both state and federal politicians seem to be tripping over themselves to get into the wind energy craze.
Back in 2010 Alliant Energy was petitioning to be allowed to increase the rates they charged for electricity, and one of the supporting reasons they put forward was the $150 million project called the Whispering Willow-East wind farm in Franklin county. This was big news in Newton, where I was living at the time, as Newton is both the location of some wind turbine manufacturers, and within the area that would be affected by the rate increase.
This serves as perhaps a perfect litmus test for how people think about economics. If you are a progressive or a neo-Keynesian, then your reaction is likely to be that this is entirely appropriate; these wind farms are being built for our benefit, so of course we must pay. If you are an environmentalist or a socialist, then, of course electricity should cost more in your mind. As you are increasing your standard of living, at the unfair expense of the environment or the proletariat, it would be akin to questioning whether people should be locked up for committing assault, wouldn’t it?
If you believe in Austrian economics, or just in free-market pricing in general, then this situation would seem a bit odd. The supply of electricity is presumably increasing because of new wind farms. Increases in supply tend to reduce pressure on prices, not cause them to increase. Yet here, the new wind projects are being cited as a reason to increase the rates per kilowatt hour to the end users. They have built a wind farm, and now demand to pay for it by charging more for electricity still produced mainly by coal which could have been provided for the old price if they hadn‘t bothered to build the wind farm.
That is how capital investment works; if you couldn’t make money by building houses in the current market, but you build a bunch of houses anyway, it doesn’t cause the price of houses to go up. Wind energy doesn’t seem to follow the script of wealth creation.
The rule of thumb seems to be that a wind turbine costs about $1 million per nameplate megawatt of capacity, so if a turbine has 3 megawatts of stated capacity then it would cost about $3 million. Then you have to factor in what the industry refers to as the “capacity factor,†which is the percentage of the nameplate capacity that the turbine actually produces, and in Iowa the capacity factor is said to be about thirty percent. In plain terms, that means that if you want one megawatt of electricity, you need a three-megawatt wind turbine. However, it isn’t as simple as that. Although Iowa might be the “Saudi Arabia of Wind†– proclaimed as such by people who have likely never been to Saudi Arabia, nor had difficulty paying their electric bills – our winds are not constant.
When the wind doesn’t blow, the turbines don’t turn. The same is true for when the wind is too strong – wind turbines are equipped with a braking mechanism to stop them during high winds. If that brake fails, the turbine blades can rattle the entire tower to pieces, if the generator doesn’t catch on fire first – which you should look up on the internet because it is an interesting sight.
As a result of all the shortcomings of wind turbines, wind power costs about $90 per megawatt hour, compared to about $60 per megawatt hour for coal and even less than that for natural gas-generated electricity, yet we are told we need to fill our skylines with expensive wind turbines which spend most of their lives perfectly still and producing nothing – and then charge us for the cost of the electricity these intensely ugly things don’t produce. The Iowa Wind Energy Association has a goal to increase Iowa’s wind capacity from 4,500 megawatts to 20,000 megawatts by 2030 – so we can enjoy 6,000 megawatts of electricity doled out in intermittent intervals.
Germany announced its intent to decommission all of its nuclear power stations after the Fukushima incident, and the German government has been very supportive of wind energy, but not a single coal plant has been shut down. In fact, Germany is replacing its nuclear capacity with new coal power plants – as many as 26 new coal power plants are planned. The wind, like the sea, is a fickle lover as it would seem.
According to wind energy supporters, expanding wind energy creates jobs, and therefore none of the shortcomings in the technology or the economics are considered to matter. This attitude seems to be the source of the consensus among political leaders – or at least the appearance of consensus – as politicians go along with the wind energy movement lest they be accused of being “against jobs.†There are even pictures of wind turbines on Iowa’s new driver’s license design.
The wind energy addiction will end up being much the same as the other fads. State and federal tax credits, grants, and green energy targets are directing capital towards these wind energy projects. The jobs created in the short term are visible to politicians seeking reelection, but the damage is diffused across the entire economy and the effects won’t be felt until later. They can see the turbine blades going down the interstate, but not the higher utility bills of their constituents – including employers – nor the layoffs when the negative financial effects become impossible to ignore. Americans are too broke to pay for expensive wind-generated electricity, governments are too broke to continue subsidizing these projects, and the economy is too broke to carry an industrial sector which generates no profits, no useable increases in electricity, and no discernable tax revenue.
Wind turbines don’t increase the standard of living; in fact they seem to make energy more expensive. They only work intermittently, wear out rather quickly without expensive maintenance, and are heavily dependent on government credits and grants for their manufacture and installation. They have also been known to kill eagles, which is reason enough to hate anything.
The future might be filled with wind turbines, but that won’t be a positive thing. They are too expensive and too underproductive to provide electricity in quantities and at prices that are necessary to make them profitable. Elected officials at all levels need to move past the rhetoric of the wind energy craze and do their own research into this matter.
Unless they do so, they have no business voting to appropriate public funds to support the construction of more public relations kitsch at $1 million per nameplate megawatt. Even now attention is turning towards natural gas as the real driver of future energy production while a combination of better exploration techniques and hydraulic fracturing makes natural gas properly cheap.
Alliant itself is looking at building a new natural gas power plant – in Iowa.
![Why I am Caucusing for Ron Paul]()
by Steven Waechter | Dec 21, 2011
“I have little interest in streamlining government or in making it more efficient, for I mean to reduce its size. I do not undertake to promote welfare, for I propose to extend freedom…..And if I should later be attacked for neglecting my constituents’ “interests,” I shall reply that I was informed that their main interest is liberty and that in that cause I am doing the very best I can.â€
– Barry Goldwater, Conscience of a Conservative
Perhaps more than any other politician of the twentieth century, Barry Goldwater captured the essence of the American spirit – ferocious independence. This spirit depends upon the Constitution for its life and energy. Without our Constitution, our nation is nothing more than another geographic location; nothing but more real estate.
The Goldwater wing of the Republican Party has been asleep for decades, as the economists espousing Keynesian and Chicago School theories on the benefits of inflation became trendy and the American political aristocracy banished the Constitution to the wilderness, to be replaced with a holy mission to spread democracy with armed drones and replace civil liberties with state-managed dependency – what Barack Obama once referred to as “positive rights.â€
Our nation is bankrupt; the unemployment rate is falling, not because people are finding work but because people are giving up and staying at home. While we still import millions of barrels of oil every day, we now export refined gasoline. As the Federal Reserve printed money to inflate the tech bubble, the housing bubble, five military conflicts, the bailout, the wealth conflagration referred to as the Stimulus, and the Treasury bonds sold to raise the money to pay the interest on the bonds sold to pay the interest on the bonds that were sold by Lyndon Johnson. The M2 supply (the number of dollars floating around out there) has more than doubled in the last ten years; as a result each individual dollar is now worth less. By doing nothing more than holding Canadian currency, the Canadian people now have the purchasing power to essentially outbid us for our own gasoline. This is what inflation looks like.
Prior to 1964 no American politician had ever referenced inflation in a political advertisement, and then Barry Goldwater did it. As Lyndon Johnson proposed to pay for a war in Vietnam and the Great Society programs of increased social spending, Barry Goldwater condemned the entire charade as a swindle, a hoax, and a fraudulent promise of perfect prosperity – if we print enough money, we will all be rich.
As the 1960’s gave way to the 1970’s, the bills began to fall due, and the government realized that its promises exceeded it’s abilities. With little more than a speech, Richard Nixon took us off of the gold standard. As it turned out, William McChesney Martin (then the Federal Reserve Chairman) had printed so much money to pay for Johnson’s war on poverty that the gold reserves were no longer adequate to back it up. Bye-bye gold standard.
Hello fiat currency. Since 2001, the Fed has expanded our money supply by upwards of $6 trillion dollars. They distributed it to the government – to pay for social programs that are necessary, not perhaps for our national strength, but for the reelection of our politicians, as well as to banks so that they could write mortgages to people who couldn’t pay them back. Nobody cared if the mortgages went bad; the banks had sold them to Fannie Mae, created by the government in 1939 specifically to buy mortgages from banks. Then, in 2008, the Federal Reserve printed the money needed to buy to bonds the Treasury needed to sell in order to fund the bailout of Fannie Mae and the banks.
In his pamphlet “Conscience of a Conservative,†Goldwater blasted what he called delusional dreams of the “Jacobins and leftists.†We in the conservative movement are not supposed to be allowed the luxury of idle utopian dreams, be they making the world safe for democracy, or making our domestic economy so wealthy (through housing and stimulus) that we simply wouldn’t need to save money, manufacture things, or export anything other that Treasury bonds. These goals are fantasies; they have led us to quagmires of humiliation, poverty, and degradation.
Will anyone dare to ask Barack Obama why, when the United States was consistently running trade deficits in excess of $40 billion per month, he believed our problem was a lack of demand? Will anyone ask why he simply assumed that if we paid people to buy new (foreign-made) cars, then our economy would improve? A trade deficit, by simple, logical definition, is the consumption of goods in excess of your ability to produce. Stimulus accomplished nothing more than the further impoverishment of the nation. Who will challenge Barack Obama on this issue?
Enter our Republican candidates, most of whom seem to think that we desperately need to print money to pay for a war with Iran. Is this really the best we can do? A choice between inflationary games to pay for socialism, and inflationary games to pay for a war that we cannot otherwise afford and could easily be prevented? Only one candidate warned of the inflationary bubble in housing as early as 2001. Only one candidate understands the fundamental problem of our economy – too much debt; too little production. Too much urgent government initiative; too little freedom.
“Extremism in the defense of liberty is no vice; moderation in the pursuit of justice is no virtue.†Barry Goldwater was roundly condemned as an extremist for these sentiments. We live in an age of bankruptcy, fear, and disappointment. Candidates of firm conviction, shrewd talents, or competent judgment are frequently passed over in favor of the candidates with the darkest nightmares, the most delusional promises, or the most artificial of Cheshire Cat grins, with their insistence that spending borrowed money will make us rich and powerful, and if you disagree then you are clearly a cynical malcontent, playing politics at a time when action is required; that is American politics in the 21st Century.
The Goldwater wing of the Republican Party – fanatical adherents to the Constitution, ferocious nationalists, resolute defenders of liberty and individual rights- has been asleep for decades. Without our Constitution, the United States of America is nothing more than real estate. The Goldwater wing of the Republican Party is awake now; and they demand to be taken into account. So far, only one candidate has.
Photo Courtesy of Dave Davidson, his fabulous work can be viewed at http://prezography.blogspot.com/
![Why I am Caucusing for Ron Paul]()
by Steven Waechter | Oct 31, 2011
In the medieval era there was a rather odd ceremony; when a member of the lower social castes found themselves in dire straights, they turned to the landowning nobility. In exchange for land to work, the noble demanded a portion of the produce, availability for certain laborious tasks, and service in the event of war. The agreement was sealed when the peasant laid his head into the hands of the noble lord.
This ceremony was called a Bondage, as it sealed the bond of the peasant to the noble, as his serf (in contrast with an Homage, where one noble became a vassal of another noble). In our advanced and progressive times, we are – of course – much more evolved and civilized. Far from relying on archaic displays of subservience, we rely instead upon the innovation called the promissory note.
Every fall, hundreds of thousands of 18-year old kids, with absolutely no concept of money, credit or finance, sit down to sign promissory notes to obtain government-backed loans so that they might attend an overpriced four – to – six year long summer camp, often mislabeled as a college or university, hoping to obtain academic degrees that are often not worth the paper on which they are printed.
The only way a teenager with no job and no assets can obtain credit in the staggering amounts necessary for today’s college tuition is for the government to issue the loans. Just as the home buyers taking adjustable rate mortgages for houses they couldn’t afford would have never been able to get a mortgage without Fannie Mae purchasing mortgage-backed securities, these kids would never be able to get student loans without massive manipulation of the credit markets. The only way America’s youth could have collectively borrowed one trillion dollars in uncollateralized debt is the government’s own policies; a free and natural capital market never would have allowed it. Government guarantees the loans, issues the loans, and sets the rules. They even made sure student loans were not dischargeable in bankruptcy, thus closing those pesky avenues to freedom and second chances for all those who got burned by a bad investment – college. They give with one hand and strangle with the other.
With legions of young people submitting without question to the propaganda preaching the absolute necessity of a college degree, and a government standing at the ready with easily available credit, tuition costs have soared. Colleges would never be able to rip off their students to this staggering magnitude if it wasn’t for government-guaranteed student loans. In 1910, the University of Pennsylvania charged $150 a year for tuition – which, incidentally, could have been earned by working 30 days on the Ford assembly line. The current charge is $36,208, more than the average teacher makes in an entire year. The century in between, where easy credit and government meddling became synonyms for “compassion,†really did make a difference, didn’t it?
To address this situation, our current noble lord has proposed a series of measures to reduce interest on student loans, forgive them if you work for the government (presumably this is to be extended to everyone now) or have them limited to a certain level of your income. The unfortunate part is, this will only add to the intensity of the growing moral hazard. While some prospective students may have begun to notice the rising price and diminishing returns of college education, now there will be new inducements, which, although they do not address the problem look as though they will help. Although, a cursory glance at the proposal has led me to believe that my particular tranche of student loans will be utterly unaffected. So much for riding the gravy train.
So, colleges can continue ripping off their students, government will continue to provide guarantees with taxpayer money to cover tuition, and the students will continue to sign those promissory notes for ever higher amounts, secure in the knowledge that their payments will be capped at a percentage of their net income, assuming they actually find a job.
By slightly reducing the harshness of bondage for today’s serfs, Barack Obama is trying to curry favor without actually having to take action, make tough decisions, or engage in mature, statesmanlike conduct. There are just too many people riding the gravy train – tenured professors who don‘t actually teach, athletics programs that compete over who has the best Brazilian jujitsu instructors, and boards of regents or trustees – and Obama can hope to bask in the admiration and gratitude of college students and the parents who are still convinced that college is the new guarantee of future security for their kids.
Barack Obama, when you stop to think about him, is really nothing more than a grown-up college student isn’t he? He has never had a proper job, he has absolutely no concept of the world outside of his own head, and yet he is absolutely convinced that he knows better than everybody else. I suppose the same could be said about most college professors and members of Congress, come to think of it.
As for student loans, I say we should just get rid of them – forgive a portion of all outstanding loans and then stop giving new ones out. Loan forgiveness will only work if the government stops giving them, or else we will be stuck in an endless cycle of debt, bailouts, and then more debt. Colleges would have to trim the fat in order to bring costs down to reasonable levels, and more classes would be big lecture hall affairs, but the prices would be unbeatable and the young could enjoy them secure in the knowledge that they are not flushing away their future for what is ultimately just a scrap of paper.
As for Lord Barry, Duke of Chicagoland, he has summoned his bannermen to the causes of central planning, government-controlled capital markets, and collective salvation – along with unsustainable, toxic debts both public and private. I hope and pray the next crop of college graduates can see past the veneer of nobility presented by an increasingly desperate professional politician, and resist the trumpets calling them to his standard.
![Why I am Caucusing for Ron Paul]()
by Steven Waechter | Aug 29, 2011
The economic relationship between the United States and China is often described as being “co-dependent.†The Chinese lend America money, and the Americans buy Chinese goods. If the Americans stopped buying Chinese goods, then people in China would lose their jobs, and if the Chinese stopped lending to America, then Americans couldn’t consume Chinese goods, and around and around as the story goes.
It is a complete mirage. Right now, the Chinese are dedicating a large portion of their economy (land, labor and capital) to produce cheap, depreciating consumer goods to sell to the United States. We pay for these goods with American dollars, and China’s domestic exporters have so far been happy to accept these dollars in exchange for their products.
These dollars flow back to China through those exporters, but the Chinese companies that end up with these dollars have a bit of a problem: They are paid in dollars, but their outflows (wages, supplies, taxes and dividends to their owners) are largely priced in the Chinese yuan, so they need to exchange their dollars for the locally accepted currency. Rather than force their exporters to sell their dollars on the international currency exchanges, the Chinese central bank has been content to buy dollars from their own exporters.
This has led to two problems from the Chinese perspective: It causes massive inflation in China (floating between 6 and 8 percent lately) as the Chinese central bank prints yuan to buy all these dollars (when you hear politicians talk about the Chinese “suppressing their currency,“ this is what they are talking about); and, it has left the Chinese with a reserve of American dollars totaling something like $3 trillion in cash, accounts, and US Treasuries. They have thus far been happy to acquire this massive stockpile because the American dollar has enjoyed the status of the world reserve currency, leading it to be considered a trustworthy store of value.
This situation is about to change. The Chinese are about to figure out that they have acquired a stockpile of money that they will not be able to easily spend. Right now, about the only things the Chinese can easily buy with their dollars is oil and US Treasuries, and some in the United States actually think that this is a sustainable economic model (the Chinese work hard, sell things to us for money, and then lend it to us so we can spend it).
The only reason we were able to run the trade deficits which facilitated the assembly of these massive dollar reserves around the world was because the dollar was considered a reserve currency. China, Russia and Japan have had to export goods in order to import other goods, because other countries were largely unwilling to hold massive reserves of these currencies. Germany, with the largest trade surplus in the world and not enough arable land to feed its own populace, has had to export things of high value in order to purchase what it couldn’t produce at home.
In response to this, we have been told that the ongoing devaluation of the dollar will begin the long process of reversing our trade deficit, as it will make our exports more affordable and more attractive to other countries. It hasn’t worked – our trade deficit is growing as of August 2011, not shrinking. Devaluing the dollar has, rather than make our goods cheaper for foreigners, actually raised the prices foreigners already holding dollars need to pay for American goods. If India devalued the rupee, then the Japanese yen will buy more rupees and Indian goods will be more attractive to holders of yen because of the exchange rate. Since the dollar is held in reserves around the world , foreign customers end up paying the same higher prices as we do when our currency loses value, because they hold our currency already.
Eventually this will all come to an end. The financial authorities in China are going to stop printing yuan to buy all these dollars, and China’s exporters will have to sell their dollars on the international exchanges. When that happens, the decline in the dollar’s value will accelerate, and the value of the yuan will begin to rise. Many Americans will be priced out of Chinese goods, and because the United States has little to offer China in trade except agricultural commodities, prices for food will rise even farther in the United States, as the Chinese try to divest themselves of the dollar by purchasing something of value to them – food – not more US Treasuries that pay interest in the form of more American dollars that China can‘t spend.
But, without the American consumer, won’t there be massive unemployment in China? I don’t believe so. There might be a brief recession in China, as their economy re-balances from producing cheap goods for America to producing things for China’s domestic markets, as well as for countries like Germany – with the world’s largest trade surplus and a trade surplus with China individually. China’s economy will recover and grow, assuming the Chinese government doesn’t screw it all up by continuing to rob their own people with inflation, as they try to suppress their own currency further.
It isn’t clear if anybody can actually win this currency conflict; the American people will have a massive recession as our bubble economy based on spending borrowed money continues its collapse, and the Chinese populace will have spent the last 20 years working hard, saving money and enduring inflation so their government could amass a pile of foreign money and bonds that are being rendered worthless.
Although, if the dollar collapses the Chinese government will be at the reigns of the new global superpower; and in return American politicians got to spend money on social programs, wars and bike trails without raising taxes. So, if you happen to be either a Chinese foreign ministry official or a 15-term member of Congress, then it really is a win-win situation. If you are a Chinese factory worker or an American looking for work, then the arrangement looks rather less appealing.
Image © ktsdesign – Fotolia.com
![Why I am Caucusing for Ron Paul]()
by Steven Waechter | Jul 26, 2011
Talking points are truly amazing things. They capture the essence of the obsessions of political operatives. The political news has recently been dominated by the talking points surrounding the debt ceiling debate, with the main terms of choice being the assorted variants of “apocalypse.â€
First of all, failing to raise the debt ceiling would not automatically lead to a default on the national debt. The federal government would continue to collect revenue, and could use that revenue to pay debt obligations as they fall due, or in other words, pay the coupon interest on time. This would involve deep cuts to everything else, and if you are a professional politician that is synonymous with impossible, so there is an assumption that default would be the result.
And that default would be “apocalyptic,†“a catastrophe,†“a disaster,†or would “cost us our credit rating,†– which is doomed anyway because it is a mirage; the federal government is borrowing 40% of the money it spends this year and is projected to do so for the next ten. This is not a debtor worthy of a AAA rating, and the only reason we haven’t seen a failed bond auction is because the Federal Reserve has been buying everything in sight.
Professional politicians who never saw a dollar belonging to somebody else that they wouldn’t spend, now lecture us on the importance of borrowing money to pay the obligations on the money they borrowed to spend on political goodies. We are told of the need to increase our debts to stay current on our debt payments.
When individuals pay debts with new debts (called “Surfing†by finance experts) it is usually the last desperate trick before they call a bankruptcy lawyer. When our political overlords do it, they demand to be: 1. Re-elected; 2. Paid more; 3. Given a medal or an honorary Ivy League doctorate.
The apocalypse for the Democrats is that this issue is coming to a head too soon. Over the next ten years, a majority of the baby-boom generation will be enrolled in Social Security and Medicare. And, as the American economy continues to die over the next ten years, it is thought that these voters will be more frightened of losing benefits than of the country collapsing under the weight of the debt. Government dependency is the Democratic Party’s stock-in-trade, and they will be there to defend all government spending with borrowed (or more likely, printed) money.
In their calculation, if they can only delay the eventual tipping point where the economy just can’t take more debt, then as things continue to get worse more voters will fear losing Big Government than losing everything to Big Government.
While we’re talking about Medicare, some time soon you should do a web search for “unemployed college graduates,†and see how many news articles you can find. Think about this: A generation wants to get government-financed benefits, while a younger generation is chronically underemployed and not paying much money in FICA (Federal Insurance Contributions Act), the tax that funds Medicare. No job means no wages; no wages means no FICA; no FICA means no Medicare – unless they print the money and finance it with pure, un-tempered inflation.
The professional politicians cannot get us out of this problem; it is in their best interest to make the problem bigger. The cynicism is downright psychopathic – make sure that so many people depend on your appropriations that you cannot lose power even if the country is completely bankrupted. This, I fear, is what most Congressional Democrats, and probably most Congressional Republicans, intend to do.
It must stop. It is time to stop rewarding politicians who successfully loot the public treasury by affixing their names to schools, institutes, nature trails and wildlife refuges as recognition of their long and illustrious careers of running the nation into serfdom.
I’ve been told that veteran bankruptcy lawyers have a common speech they give to their clients who feel guilty or ashamed about the debts they’ve run up. They say “Stop that. Do you think corporate CEO’s feel guilty when they restructure debt? No! You are Mr. and Mrs. X, Incorporated, and you are getting out of debt.â€
We need to put down the pride, the guilt, and the illusions of prosperity fashioned by self-interested politicians, and declare that we are the United States of America, Incorporated, and we are getting out of debt. If we don’t, we will default eventually anyway either directly or through currency devaluation, but by then our nation will not have a future. At all.
[Note: The first article “On National Debt, Default is Inevitable,†the numbers in the article were from the Monthly Statement of the Public Debt, June 2011, but the link inside the article was to the Monthly Statement of the Public Debt from June 2010. Apologies for the error.]
Photo Becky Stares – Fotolia.com
I recently heard a radio commercial urging me to contact various members of Congress to voice my support for tax credits connected to the wind energy industry. On a lark, I went to the Iowa Legislature website and searched active bills for the word “wind,†and received several dozen hits, many of which seemed to be focused on state tax credits for manufacturing and installing wind turbines. Both state and federal politicians seem to be tripping over themselves to get into the wind energy craze.